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AUGUST 2013 - VOL. 29 NO. 8
(Continued on page 2.)
by Ken Silverstein
July 15, 2013 Energy Biz Insider
Competitive
forces in the retail
electricity markets
have been relatively
silent in recent
years. But some
rumblings are now
taking place,
causing advocates
of free markets in the utility business to say
that a revival may be coming.
The latest buzz is centered on Direct Energy’s
just-announced proposed acquisition of
Bounce Energy, a privately held retail
electricity provider operating in New York,
Pennsylvania and Texas. It would be a
$46-million cash deal that, if approved
by regulators, would add another
80,000 customers to Direct Energy’s
6 million residential base. Bounce is
best known for its e-commerce and
online digital marketing abilities.
Is competition working? Essentially,
there are two ways to examine whether the
liberation of market forces in the electricity
sector has worked to the betterment of
consumers, namely by counting the number
of suppliers as well as comparing overall
energy prices. In theory, the more businesses
vying for consumers’ electricity services,
the fairer prices will be.
The flip side of the discussion is that
electricity is an essential commodity that
everyone needs to survive. Exposing
consumers to the whims of the market would
hurt those who can least afford it. Or, worse,
consumers could once again get gouged by
energy marketers, which were able to massage
supplies in California in the late 1990s and
early 2000s, causing prices there to skyrocket.
Is Electricity Market Restructuring Undergoing A Revival?
Consider Texas, where both Direct Energy
and Bounce Energy are based: Deregulation
has permitted retail consumers there to choose
since 2002 their so-called retail electric
provider (REP), which purchases its power
from competing generators. Transmission and
distribution is still provided by the local utility.
To help customers shop, the REPs are required
to provide standardized information related
to pricing, contract terms and emission levels.
Today, an estimated 5.6 million households
are serviced by alternative providers.
“Many electric retailers in Texas are considering
how to better serve their customers when they
are contacted,” says Andrew Heath, senior
director of the energy and utility practice
at J.D. Power and Associates. “The large
improvements show that electric retailers
are putting practices in place that improve
satisfaction, which helps retain customers.”
It counts at least 20 alternative suppliers.
Different Day
Some incumbent utilities are satisfied with
control over their jurisdictions, realizing that
they can safeguard their market shares. But
smaller players want access to those extremely
lucrative markets, emphasizing that they can
deliver superior products and services.
After the
California and
Enron debacle,
controversy
stirred over how
things could have
gone so wrong.
Finger pointing
was all around:
State regulators
had poorly
crafted the rules while federal monitors sat
passively on the sideline as electricity markets
were going haywire. Energy marketers,
meantime, swooped in for the kill - some of
whom broke the law and went to prison for it.
After that, the focus shifted to wholesale
markets, where independent power producers
sell directly to industrials and utilities. It's
been about giving those unregulated entities
fair access to the transmission lines.
Open access to the transmission wires has
been responsible for the increase in green energy
now available to many consumers. And while
the regulatory changes to allow such progress
have hit roadblocks, the various stakeholders
have adjusted their course, says the Compete
Coalition. It says that regulation and oversight
is stronger now than before the process started
in the mid 1990s.
Studies vary on whether those in regulated
energy markets have paid less than those
in states that have restructured their markets.
In such cases, the key question to ask is which
entity funded the exam. Free market groups
bankroll certain surveys while those with vested
or entrenched markets will cite - and pay for -
contradictory studies. Relatively low natural gas
prices have accrued to the benefit of nearly
all consumers, taking the heat off this issue,
for now.
Times are different from what they were in the
early 2000s when things went awry. Advocates
of free markets say the process can work for
retail electricity markets, just as it has done for
the telecom and natural gas industries. Direct
Energy says that focusing just on wholesale
markets precludes customized solutions for
homeowners.
Today, the Compete Coalition points to Arizona
and Indiana, two states that are considering
opening their retail electricity markets. The
advocacy group also notes that Pennsylvania
and Ohio have been successful getting business
and residential customers to switch to alternative
providers. Still, no one can deny that residential
users are generally complacent, having less
incentive to switch providers than larger
commercial and industrial businesses.
Ken Silverstein

AUGUST 2013 - VOL. 29 NO. 8
(Continued on page 2.)
by Ken Silverstein
July 15, 2013 Energy Biz Insider
Competitive
forces in the retail
electricity markets
have been relatively
silent in recent
years. But some
rumblings are now
taking place,
causing advocates
of free markets in the utility business to say
that a revival may be coming.
The latest buzz is centered on Direct Energy’s
just-announced proposed acquisition of
Bounce Energy, a privately held retail
electricity provider operating in New York,
Pennsylvania and Texas. It would be a
$46-million cash deal that, if approved
by regulators, would add another
80,000 customers to Direct Energy’s
6 million residential base. Bounce is
best known for its e-commerce and
online digital marketing abilities.
Is competition working? Essentially,
there are two ways to examine whether the
liberation of market forces in the electricity
sector has worked to the betterment of
consumers, namely by counting the number
of suppliers as well as comparing overall
energy prices. In theory, the more businesses
vying for consumers’ electricity services,
the fairer prices will be.
The flip side of the discussion is that
electricity is an essential commodity that
everyone needs to survive. Exposing
consumers to the whims of the market would
hurt those who can least afford it. Or, worse,
consumers could once again get gouged by
energy marketers, which were able to massage
supplies in California in the late 1990s and
early 2000s, causing prices there to skyrocket.
Is Electricity Market Restructuring Undergoing A Revival?
Consider Texas, where both Direct Energy
and Bounce Energy are based: Deregulation
has permitted retail consumers there to choose
since 2002 their so-called retail electric
provider (REP), which purchases its power
from competing generators. Transmission and
distribution is still provided by the local utility.
To help customers shop, the REPs are required
to provide standardized information related
to pricing, contract terms and emission levels.
Today, an estimated 5.6 million households
are serviced by alternative providers.
“Many electric retailers in Texas are considering
how to better serve their customers when they
are contacted,” says Andrew Heath, senior
director of the energy and utility practice
at J.D. Power and Associates. “The large
improvements show that electric retailers
are putting practices in place that improve
satisfaction, which helps retain customers.”
It counts at least 20 alternative suppliers.
Different Day
Some incumbent utilities are satisfied with
control over their jurisdictions, realizing that
they can safeguard their market shares. But
smaller players want access to those extremely
lucrative markets, emphasizing that they can
deliver superior products and services.
After the
California and
Enron debacle,
controversy
stirred over how
things could have
gone so wrong.
Finger pointing
was all around:
State regulators
had poorly
crafted the rules while federal monitors sat
passively on the sideline as electricity markets
were going haywire. Energy marketers,
meantime, swooped in for the kill - some of
whom broke the law and went to prison for it.
After that, the focus shifted to wholesale
markets, where independent power producers
sell directly to industrials and utilities. It's
been about giving those unregulated entities
fair access to the transmission lines.
Open access to the transmission wires has
been responsible for the increase in green energy
now available to many consumers. And while
the regulatory changes to allow such progress
have hit roadblocks, the various stakeholders
have adjusted their course, says the Compete
Coalition. It says that regulation and oversight
is stronger now than before the process started
in the mid 1990s.
Studies vary on whether those in regulated
energy markets have paid less than those
in states that have restructured their markets.
In such cases, the key question to ask is which
entity funded the exam. Free market groups
bankroll certain surveys while those with vested
or entrenched markets will cite - and pay for -
contradictory studies. Relatively low natural gas
prices have accrued to the benefit of nearly
all consumers, taking the heat off this issue,
for now.
Times are different from what they were in the
early 2000s when things went awry. Advocates
of free markets say the process can work for
retail electricity markets, just as it has done for
the telecom and natural gas industries. Direct
Energy says that focusing just on wholesale
markets precludes customized solutions for
homeowners.
Today, the Compete Coalition points to Arizona
and Indiana, two states that are considering
opening their retail electricity markets. The
advocacy group also notes that Pennsylvania
and Ohio have been successful getting business
and residential customers to switch to alternative
providers. Still, no one can deny that residential
users are generally complacent, having less
incentive to switch providers than larger
commercial and industrial businesses.
Ken Silverstein